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On July 9, Japan’s Kansai Electric
Power Company‘s (TSE:9503) 1180 MWe Ohi 3 unit
reached full capacity, prompting the Japanese to announce a
reduction of its energy savings targets. The unit was restarted
following the suspension of Japan’s nuclear reactors for
safety inspections after the Fukushima disaster in
2011. Ohi
3′s sister unit, Ohi 4, is also expected to
be restarted later in July.

Japan is heavily dependent on nuclear power, with nuclear
supplying a third of the country’s energy needs. When all 54
Japanese nuclear reactors were idled for safety checks and
maintenance following the earthquake, however, Japan’s utility
companies drastically cut back their use of oil and natural gas
substitutes. With fears of blackouts looming, especially during
the power-hungry summer months, Japan’s politicians urged
citizens to reduce their power consumption and implemented
targets for saving energy.

Chief Cabinet Secretary Osamu Fujimura announced that beginning July 10,
energy-saving targets will be relaxed from 15 to 10 percent.
Fujimara expects the targets to be further revised once Ohi 4
comes back online.

The disaster at Fukushima, recently characterized as
“preventable” in a scathing official report, has forced Japan to
rethink its allocation of energy resources.

Daniel Kammen, a professor with the Department of
Nuclear Engineering at the University of California at Berkely,
told Uranium Investing News, “in the medium to longer term, Japan
has initiated a true reassessment of energy resources, with
efficiency prioritized right away, and new solar, offshore wind,
and geothermal seen as sectors that can and should grow very
large, very fast.”

Fossil fuel dependency?

Jessica Lang, a nuclear energy policy associate with The Breakthrough
Institute, pointed to data from last March, commenting,
“since the earthquake, fossil fuels have provided about 80
percent of electricity, while nuclear has dropped to about 10
percent.” She believes it will be challenging for the country to
meet costly demands and scale requirements. “As we’ve seen over
the past year, Japan has greatly increased its burning of fossil
fuels by about 35 percent, which means much more coal and LNG
[liquefied natural gas] imports. [It has also] increased its
hydro by about 40 percent, which involves running existing dams
more of the time,” she stated.

Although relatively expensive, Lang indicated, “most analysts
expect Japan to continue ramping up coal and natural gas
electricity production. Renewables currently make up about 1 to 2
percent of Japan’s electricity, but most of that is waste and
biomass burning, which is difficult to scale up.”

Joseph Dukert, senior fellow with
the US
Association for Energy Economics believes a solution
will involve, “a gradual rebuilding of the Japanese nuclear
stable. The only feasible supplement I can envision, however, is
natural gas; and this will depend on a large increase in global
gas production and a steady, costly development of delivery
infrastructure, both by pipeline and LNG. I expect Japanese
energy supply problems to continue for perhaps a decade.”

Pro-nuclear politics prevail

In the Kagoshima Prefecture, a supporter of the nuclear industry
was re-elected for a third term. The incumbent governor, Yuichiro Ito, defeated anti-nuclear
activisit Yoshitaka Mukohara, who focused his entire campaign on
opposing the restart of the prefecture’s Sendai nuclear power
plant. Using safety and public acceptance as cornerstones of the
nuclear issue, Ito indicated that he will conditionally support
the proposed restart of Kyushu’s two pressurized water reactors
at Sendai, whose operations have been suspended since entering
their respective scheduled outages in May and September 2011.

Uranium fundamentals still strong

As the energy crisis in Japan continues to unfold, the massive
drawdown of nuclear power in Japan, along with Germany (last year
Japan used 44 percent less nuclear power, Germany reduced nuclear
by 23 percent and worldwide nuclear power use dropped by four
percent) has certainly impacted the price of uranium, though not
drastically. Spot prices have slipped to between $50 and $55 per
pound, about $10 below pre-Fukushima levels, but are expected to
rebound in 2013 according to a recent Scotiabank report.

Factors behind a rebound include the coming expiration of the
“Megatons to Megawatts” program between the United
States and Russia to convert highly-enriched uranium from nuclear
warheads to low-enriched uranium for nuclear fuel, which is
expected to remove 24 million pounds from the market. China’s
plan to restart its nuclear program after conducting safety
reviews is also likely to lend support for uranium prices longer
term. The country proposes to build 100 reactors by 2030 and 197
by 2050.

Demand for uranium oxide is expected to grow by three percent per
annum as the developed world clamors for electrification. The
amount of mined uranium, however, is currently insufficient to
keep up with demand, meaning prices are likely to continue moving
up.

Securities Disclosure: I, Dave Brown, hold no direct
investment interest in any company mentioned in this
article.